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Define dabba trading: The illegal practice of buy/sale of securities outside the exchange mechanism without any documentary

evidence to relate such transactions. In India,gujarat and uttar pradesh are two main centres for dabba trade.

Dabba trading is a term for a type of trading that was used in India, similar to the "bucket shops" in the U.S. Dabba means "cubicle." It was banned by the Securities and Exchange Board of India (SEBI) in January 2003

As if dabba trading in stocks and commodity was not enough , punters in rajkot and other parts of saurashtra have started foreign currencies trading. E.g. euro, pound, yen, australlian dollar. Which has a daily turnover of rs.100 crore.

It may be learnt that the Securities Contract Regulation Act permits securities transactions only through stock exchanges unless the settlement of the trade is done on a spot basis i.e. the receipt and delivery of shares happen within 24 hours of the trade. But a dabba operator allows the client to carry forward the trade, be it in cash or in derivative segment for a period, not necessarily prescribed by the stock exchange. The cash trade is not settled on rolling basis and the derivative trade may not have a month-end settlement cycle.

In dabba trading, most of the times, neither written contracts are made, nor the bills are issued .The settlement cycles are authorized by the dabba operator, himself. There is no daily mark to market settlement if the trade is in client s favour, whereas losses are extracted regularly from the clients.

Dabba is a trade where brokers and speculators illegally bet in commodities to make quick bucks. This is a practice mushrooming in several tier-II towns like Rajkot, Vadodara, Jaipur, Jalgaon, Ludhiana along with metros like Kolkata, Mumbai and Delhi. Dabba trades are dealings which happen outside the exchange. Here, punters use the exchange traded prices as the reference quote to take bets.

Dabba Trading also known as Bucketing is the process used by brokers to route their clients trades outside the Stock/Commodity exchange. In such trading, the broker either does not execute any trade or matches and execute trades on its own terminal. Dabba has its origin in the developed markets where a system called bucketing prevails.

Bucketing is an illegal practice where a stockbroker executes a customers trade without taking it to a stock exchange with the hope of making some gains at a future date. essentially, bucketing involves the confirmation of an order from a client without actually executing the order on the clients behalf.

The anticipation is that the broker will be able to realize enough profit to offset the difference to the client at a future date, either due to executing the order at a later date or through profits generated on other transactions

ONLINE DABBA TRADING : This fraudulent practice is prevalent only in the F&O segments because the exchanges allows the modification of client codes in the F&O segments by the brokers at their choice without any security mechanism or supervision by the exchanges. The client places an order for buy or sells position on the exchange in the F&O segments. The trades is executed on the exchange and reported to the client.

Within few second, the broker execute the reverse transaction where by the position of the client on the exchange becomes nil. Then the broker changes the client code of the reverse transaction into a different client code and thus the contract note is generated for the transaction done by the client only and even if the investor verify the transaction on the exchange, it will not show the reverse transaction in his client code as the client code has already been changed.

Subsequently, when the client squares the transaction, the similar reverse transaction is executed and client code is changed. Thus, as the net position on both the dates of buying and selling is nil, the ultimate profit or loss accrued to the client vis--vis broker only.

Normally, in such cases, the broker will not issue the contract notes and will report the transactions manually. Some will provide only the MTM bills that too just computer output on the plain paper without any stamp/letterhead so that these can not be used as evidence against them. The main risk to the investor is whenever, the broker suffer heavy losses due to risk they undertake due to dabba trading, they are likely to dispute the transactions or abscond. Most of the brokers who had absconded in last three years are due to losses suffered due to such frauds.

Some of the fraudster have developed the software whereby , the moment transaction is executed in the client account, an automatic reverse transaction is executed so that these manipulation can be done at the large level because manually it required a number of people.

Steps against dabba trading: The Indian dabba trade is a variation of the American bucket shop operations of the 1920s, which were known to have mafia links. In India, a sizeable number of brokers and sub-agents were found to have links with the underworld. All these trades are violative of Sections 15,18,20,21 and 21A of the Forward Contracts (Regulation) Act, 1952.